The army of the East India Company was comprised of British Citizens, they sailed on ships owned by British citizens, and they'd just been extricated from an existential crisis by the British government. Nobody had loyalty to the East India Company, and nobody perceived it as a legitimate government.
– Mark C. Wallace♦Jun 29 '14 at 22:09

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This is a great question. A good answer to it would help illuminate the difference between a country and a company that sometimes acts like one.
– JoeJun 30 '14 at 1:07

4 Answers
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Because it didn't have a choice: it had neither the will to defy the British Government, nor the ability to do so. Remember corporations are not people; its shareholders and directors were. In this case, most of them were British, owning properties and with aspirations in Britain. That alone made resisting a duly constituted Act of Parliamentby force entirely out of the question.

Politically speaking, the Government of India Act 1858 was passed in the aftermath of the Indian Rebellion of 1857. After that disaster, Company rule of India came to be seen as wildly inadequate. This was after decades of concerns for mismanagement and corruption of Company rule. By 1858, there was simply no political support left for maintaining the East India Company.

The reality is that by 1858, India under Company rule was actually controlled by the British Government. Desite the name and facade, the British government had already decisively inserted itself into the governance of India. Thefore, the British Government of India was hardly going to rebel against itself over a reorganisation.

Now, the nationalisation in 1858 did not appear out of a vacuum. Rather, it was the culmination of a takeover process spanning almost a century:

The East India Company Act 1773 declared the Company's territorial expansions to be acquisitions for the Crown. This made India sovereign British territory that the Company administered on behalf of the British Government. It is therefore subject to oversight and regulation by the government. A council was appointed to govern India, consisting of a politician, a peer, an army officer, and one Company representative.

The Crown's right to regulate India was implemented in the East India Company Act 1784, which vested ultimate authority of India in the Board of Control. Unlike the previous Council of Four, the Board of Control was explicitly a government organ: it is composed of the Chancellor of the Exchequer, a second cabinet minister, and four other Privy Councillors. This wrestled control away from the company's Court of Directors as well as its shareholders.

The East India Company ceased to be a trading company when the Government of India Act 1833 revoked its trade license completely. This formally turned the East India Company into the British Government's administrative subsidiary for India, and put an end to its history as a commercial entity.

The end result is that, by 1858, the people in actual control of India were firmly an extension of the British Government - effectively a proto-Imperial Civil Service. They have no reason not to obey the laws of their government, or worse, revolt. At least, not over whether to keep doing their jobs under the name of the East India Company. The Governor-General of India at the time, The Earl Canning, continued in the same capacity until 1862, for instance.

The East India Company Before 1858

I hope the previous paragraphs adequately explains why the East India Company had no choice when Parliament nationalised it in 1858. But I suspect the real question now is why the Company allowed the British government to impose this string of escalating control in the first place.

The answer is again that the East India Company had little choice. Despite misconceptions, the East India Company was not rich. In fact, it found itself close to bankruptcy after 1760. It spent the last decades of its life in dire financial straits, the wealth it exploited from India pocketed by the English Nabobs. It was against this backdrop, that Parliament began reasserting its authority over the East India Company.

Essentially, the East India Company was imploding after its acquisition of quasi-sovereignty over Indian lands. It found itself liable for large expenses while warfare derailed its trade relations. This decline in Company fortunes was then exacerbated by rampant corruption - officials came home with splendid fortunes while poor dividends were paid to shareholders. By 1773, the heavily indebted East India Company was close to bankruptcy. It had failed to pay its license fees for five years running. Tea was some 60% of the Company's trade by the late 18th Century, and yet close to 20 million pounds of it lay unsold in warehouses.

Thus the directors of the Company petitioned the government, begging for relief in the form of a £1,500,000 loan. This petition, introduced into Parliament, became the East India Company Act 1773. The Company was forced to accept government authority over its previous quasi-sovereignty in India. But by 1783 the directors were back in Parliament, once again grovelling for relief. And once again the British Government inserted itself deeper into the management of British India, in the form of William Pitt's 1784 Act.

Pitt's India Act really marked the decisive moment when the East India Company began to be absorbed into the British Government apparatus. With the removal of the East India Company's monopolies, the company was largely doomed. Its tendency to end up in wars did not help one bit. By 1833, the East India Company was once again near bankruptcy. This time, it was stripped of its commercial character altogether. It had lost its Indian monopolies in 1813, and now the Chinese monopolies were gone.

The fatal Burmese war undermined the very foundation of our financial prosperity. Our treasure has been exhausted; our debt has been increased from £31,623,780 to £41,801,808; no surplus revenue has been realised sufficient to defray the territorial charge; and from the best view which I can take prospectively of our finances, I entertain serious apprehensions with respect to the practicability of our obtaining from India, even during a period of peace, a clear annual surplus, sufficient to provide for the territorial disbursement in this country, augmented as it will be, by the Annuity of £630,000.

The Government provided the Company with an Annuity. From that, and the revenues of India, the East India Company were to pay dividends to its shareholders. By this point, the Company had effectively been finished.

The English (later British) East India Company did act politically in London: it had more political power when it was rich and paying or lending money to the government in London than when the situation was reversed. Its lobby was for a trade monopoly with India and freedom to take commercial and territorial decisions; its opponents wanted trade competition, and government control of decisions with political consequences. It had no physical force in London and its lobbying there depended on overwhelming financial success, something which had largely disappeared by the end of the 18th century.

The East India Company was regulated by royal charter from the start of the 17th century and was generally successful. But once things started to change commercially, control moved to acts of parliament, such as the Regulating Act of 1773 which tried to resolve its high debt and tea surplus with the Tea Act, leading to the Boston Tea Party and so affecting the American Revolution.

The increasingly political nature of the Company's territory in India, and especially the consequences of the victories in the Anglo-Maratha and Anglo-Mysore wars and the relationship with the Napoleonic wars in Europe, meant that the London government were more determined to control the Company, which was too weak in London to resist a series of reforms from the Westminster parliament.

The final straw was the Indian Mutiny in 1857, leading to the 1858 Act and direct British government responsibility in India. By this stage, the Company could only ask for some financial protection: Wikipedia has a list of related Acts of Parliament, most of which were aimed at protecting the company's creditors and shareholders.

I hope, On 2nd August 1858 the Parliament passed a bill to take over the administration of India from the East Indian Company by the British Crown. The title of Viceroy was introduced for the supreme representation of the British Government in India.

The provision of this bill called for the dissolution of the British East India Company that was ruling India under the patronage of the Parliament and transfer of that power to the British Crown. The then Prime Minister of the United Kingdom, Lord Palmerston, introduced this bill, which would transfer power from the East India Company to the Crown, citing shortcomings in their administration of India.

This bill was passed in 1858, the year following the first war of Independence in India (or what the British referred to as the Indian Rebellion) to calm down the after effects of the uprising.

Right till the nineteenth century nothing threatened the rule of the British in the Indian sub-continent, until the first Indian war of Independence in 1857. The British East India Company which was essentially a British Joint Stock Company established to engage in trade with the Indian sub-continent and the North-West Frontier Provinces and Balochistan, was completely unprepared for this sudden and violent uprising, which caused large scale devastation in India. The East India Company was condemned by the British Government for their lack of control and allowing this event to take place. To further avoid such a disaster, The East India Company had to surrender all their power to the British Crown. Eventually, the East India Company was nationalized and lost all its administrative powers to the Crown, which ushered in a new age of the British Raj.

The (British) East India company was formed in 1600 under Queen Elizabeth I to operate a trade monopoly.By about 1770, it was also tasked with keeping order in India. So far, rights and responsibilities were in reasonable balance.

By the Government of India Act of 1813, and again in 1833, the East India Company was stripped of most of its monopoly privileges, which were transferred to London. It had not lost its responsibility for maintaining order. This, it was totally unable to do during the 1857 Sepoy Rebellion.

By this time (1858) "the game was not worth the candle," because the East India Company had lost most of its sources of revenue while being unable to perform its "peacekeeping" function or otherwise protect its own interests.